'Pro-growth economist'

Charlie Elphicke is the Member of Parliament for Dover and Deal. Follow Charlie on Twitter.

Everyone is disgusted by the industrial scale tax avoidance culture of big
multinational companies. Last week, Labour Leader Ed Miliband joined the ranks
of the concerned, saying of the abuse of our tax system, "As so often
under this Government, I think it is evidence of one rule for those at the top
and another rule for everyone else."

Except Miliband has a problem. The problem is that the culture of industrial
scale tax avoidance grew up under 13 years of Labour Government. Income tax
receipts rose 81% while corporation tax receipts hardly rose just 6%. So income
tax receipts went from £76.8 billion a year in 1997-98 to £139.3 billion a year
in 2009-10. Meanwhile corporation tax (leaving out oil tax levies) went from
£28.6 billion a year in 1997-98 to £30.2 billion in 2009-10 – a rise of just
6%.

During this time Ed Miliband was either advising Gordon Brown's Treasury or a
Minister in the Labour Government itself. While Labour's Margaret Hodge, now
the Chairman of the Public Accounts Committee laying into Google as "doing
evil", was also a Minister in that Government. A Labour Government that
was asleep at the wheel when it came to tackling tax avoidance by
multinationals. They were too busy snuggling up big businesses like these with
their prawn cocktail offensive. They failed to keep tax law up to date for the
Internet age. The result is a culture that is unethical, unacceptable and
irresponsible. This is not a culture that has anything to do with the current
Government. It is part of Labour's toxic legacy.

Tackling tax avoidance is something people are seriously concerned about. A
recent YouGov poll found that 62% of the public considered (legal) tax
avoidance unacceptable. A ComRes poll found that 84% agreed that the Government
should crack down on tax avoidance by businesses operating in the UK. Indeed
60% were prepared to call the bluff of every large corporation that threatens
to disinvest from the rich UK market saying the Government should crack down on
business tax avoidance even if it causes unemployment or some companies to
leave the UK.

When Shadow Chancellor George Osborne MP set out his party’s pledges on public spending in The Times last September, his promise to match Labour’s fiscal plans for three years caught the most attention. The budget was set to rise from £615 billion in 2008 to £674 billion in 2010 – a two per cent annual increase in real terms.

Torn between the party’s economic liberals – who were demanding tax cuts – and an alleged general desire to spend more on public services, the Conservative leadership described their budget as a plan for “sharing the proceeds of growth” – a phrase aimed at pleasing everyone. It meant more money for schools, hospitals and the police for those who prefer higher spending. To people who want a smaller state instead, it was a synonym for less government. After all, if the proceeds of growth were shared between higher absolute spending and lower taxes, the state’s relative share of GDP would fall.

But above that, by committing to Labour’s spending plans the Conservatives wanted to reassure the general public that no “Tory cuts” would happen if elected. No hospital would close, no policeman laid off, no school would suffer. In this sense, it was good politics as it closed a complete angle for political attacks.

Since George Osborne wrote his article, the outlook for the UK economy has darkened, however. The true scale of the Northern Rock disaster is gradually emerging, consumer spending has slowed, and house prices have gone into reverse – and that is without mentioning the big international question marks like the US economy and energy prices. Amid such clouds on the economic horizon, it is unsurprising that many economists have revised downwards their forecasts for this year. Most analysts now believe that we can only expect growth of just below two per cent in 2008. But even this may turn out to be too optimistic if the housing market correction turns out to be more severe than estimated. How growth will look in the years after 2008 is only intelligent guessing.

So where does this leave the Conservatives’ plans to “share the proceeds of growth” and increase public spending by two per cent annually for the next three years?